Annuities

The Question that Raised the Hair on My Neck … and Can Raise Your Business Standards


Annuities

Early on in my career, I participated in training for wholesalers that emphasized the need to create a business plan with each of my top advisors. 

 

The plan was not complicated. In fact, it was bare bones, simple and to the point. It established a commitment between me (the wholesaler) and the retail representative, outlining how each expected certain activities from the other to make the relationship mutually beneficial. It was never more than a single page.

 

Sounds easy, right? Well, it required me to ask the advisor a new question. Changing habits can be hard … but I knew I had to try. 

 

Taking the First Step

After the training, I went out into the field. I had doubts about the value of making a quarterly business plan with every one of my top producers. However, as a new wholesaler with the company that sponsored the training, I felt compelled, even obligated, to try it. 

 

When I arrived at my next meeting, I took nothing other than my pad of paper. The advisor and I talked about her business for about 45 minutes. I learned a lot by asking the right thought-provoking questions, and I gave her some ideas that I thought she might use, based on her business and clientele. This advisor sat in a bank and during my time at her desk, I discovered she did millions of dollars of business with a competitor. 

 

As we wrapped things up, it was time for me to ask her for the next appointment and for us to sit down and do a business plan together. A “yes” meant that she liked the interaction with me, and my company, and had interest in our products for her clients. A “no” meant that I destroyed the relationship before it got off the ground. 

 

In the past, I would have asked for the next appointment but with no specific purpose. Or, I would have relied on my internal partner to follow up with the advisor and set another follow-up appointment. But, I had made a commitment to myself to change the way I sold – times were changing and advisors were looking for better partners.

 

So I gathered my confidence up and asked for the next meeting in three weeks, when I would be back in the area. And, I asked that we set aside 90 minutes so we could jointly create a business plan that would help keep both of us accountable to reaching some of the goals she had outlined.

 

There was dead silence for what seemed like an extended period of time … like eternity. I could feel the hairs on the back of my neck standing up, and it felt like I was about to break out in a cold sweat. 

 

Her response? She was happy to do it. In fact, she said she didn’t move forward with a wholesaler before making a formal business plan with the company’s representatives. I was floored. It was as if it was set up by the training school. 

 

Planning for Success

This advisor went on to become a multi-million dollar producer for me. In our business plan, we agreed to set out the very next quarter to host a client event, where she would have 50 clients and prospects in attendance. In the following quarters, I would provide training to her staff and mailers to use with existing clients, and I would host a networking event for centers of influence around town. For those commitments, she said she anticipated placing a portion of her business with me and my company. 

 

I encourage all financial professionals to have this same requirement of their partners and distributors. As we move deeper into the fiduciary world, it’s more important to surround yourself with firms, wholesalers, and other advisors whom you can trust with your clients. 

 

Business planning comes in many forms. But, planning with your partners might be the most crucial aspect for the ongoing support you need in this complicated financial services world. 

 

Winning Strategy

Create a business plan with each of your vendors. Those who complete the exercise with you should be considered partners. That’s what you are looking for in today’s complex distribution. You need partners who understand you business and can help it grow. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Financial Planning Business Planning Practice Enhancement

4 Trends that will be Critical to Your Practice


Annuities

Right now, clients are demanding that we have their best interests in mind. And, that’s where it should be. Unfortunately, many consultants and outside counsel tell our industry that best interest translates to level fees and lower commissions. While you may be feeling the effects of leveled commissions, it’s no reason to stop growing your business. 

 

Many commission-based products are well suited for clients in the retirement income planning space. And, there are some major demographic shifts taking place that will affect them over the next several decades. The proper combination of assets under management (fees), advice (advisory practice), and commissionable products can create best interest solutions for many Americans feeling the impact of these trends. 

 

The Trend: Our savings rate has continued to fall over the last two generations. Today, the savings rate rests around 5.0-5.5 percent. We only see spikes in the savings rate during high inflationary periods or when we completely distrust Wall Street. The result, according to the LIMRA Fact Book, is that trailing baby boomers (age 50-59) have saved a median retirement account balance of $130,100.1 

The Impact: You will have to generate more income with less assets than any planning generation before. 

 

The Trend: Americans continually misuse our Social Security system. More than half of Americans take Social Security early – only 2 percent of men, and 4 percent of women, defer their income to age 70.2 That means nearly 98 percent of men and 96 percent of women are missing out on 8 percent guaranteed growth on their income between full retirement age and age 70. Over half the population takes their income earlier than full retirement age and elects to take as much as 25 percent less in income. 

The Impact: You must provide solutions to bridge the gap of income and maximize social programs for your clients. 

 

The Trend: Defined benefit pension plans are being replaced with defined contribution plans. The loss of guaranteed income in a retirement plan will prove devastating over long periods of time. Our research shows that retirement is optimized (95 percent probability of having at least $1 in the portfolio at age 95) with anywhere between 15-25 percent of the portfolio dedicated to producing guaranteed income. 

The Impact: You must educate clients that guaranteed income can only come from Social Security, defined benefit pension plans and insurance company contracts (annuities). 

 

The Trend: Longevity must be mitigated in order to have a successful retirement strategy. Our spending taper in the United States mirrors a smile more than anything else. Retirees tend to travel in early retirement followed by a slow down period of spending. At the end of life, there are health concerns, long-term care events, and housing elections that increase spending. It’s this final phase that is unpredictable, uncapped, and highly inflationary, making it difficult to address without proper planning. 

The Impact: You must help your clients plan for longevity, or their spending smile will turn into a smirk very quickly.

 

All of the above are major shifts that are either taking place now, or will affect our business over the next several decades. You have to make sure you can address these issues in your planning practice, regardless of your business model (advisory or commissions). It will be critically important to do more with less assets, maximize Social Security, create guaranteed income streams, and take the longevity risk off the table. These risks can be mitigated with assets under management and complementary commission-based products. Plan differently to address the shifts that are taking place in America, and grow your business with solutions-based recommendations that include all products. 

 

Winning Strategy

Plan differently to think differently in the future. There are major demographic shifts occurring in the United States that will affect planning over the next two decades. Get your arms around them now to stay above the crowd in the future.  

  

Learn More

1LIMRA, Fact Book on Retirement Income 2016: https://www.limra.com/bookstore/item_details.aspx?sku=23518-001 

2The Motley Fool, “When Does the Average American Start Collecting Social Security?” April 19, 2016: https://www.fool.com/retirement/general/2016/04/19/when-does-the-average-american-start-collecting-so.aspx

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Retirement Social Security Annuities

How to Deliver Value and Better Your Business


Annuities

As you read this, the financial services world is changing. Regulatory pressure accelerated a shift over the past 12 months; however, the current state of fiduciary status was inevitable. Our clients were beginning to demand it, and today, we have to deliver it to even stay in the game.

 

The challenge, and the main reason to really think about your business in 2018, is to remain relevant with your clients and prospects through the fiduciary standard. The firms that grow will be the ones that not only adapt to the fiduciary rule, but also find ways to differentiate themselves from the rest of the fiduciaries in the marketplace. 

 

Discovering Your True Value

Your value in the market place will never be defined by your broker-dealer or regulation. Value is determined by how much you deliver above the cost of your services. That’s not to say that the U.S. Department of Labor’s rule won’t likely affect how broker-dealers form your commission schedules. But, your level of commission doesn’t determine your value. It’s how much you deliver to your clients. 

 

Value is about the client experience. How you deliver your expertise may be more meaningful than the information itself. Clients want to have information now. It must be accurate. It has to be timely. And, it must be easy to understand and digest. 

 

Value is also delivered by those items that clients truly value. Asset allocation is becoming – or has been for some time – a commodity. It has been outsourced by third-party money managers, computerized, and easy to access via the Internet. In order to drive value above your current pricing, you need to find other topics that are important to your clients. 

 

Retirement income is a nearly irrevocable decision. You only get one chance to get it correctly. If your client begins running out of money, it’s usually too late to correct the path. Income planning requires expertise, tools, and understanding of the emotional impacts of a variety of external factors. Robo advisers are not equipped to handle this in-depth conversation and complex problem. 

 

Bettering Your Business

This is where you need to plan for 2018 and beyond – by reshaping your business for maximum success in the future. It’s no longer OK to simply bring on new clients, apply an asset allocation model, and monitor the assets. You have to think about the demographic shift happening in the United States and the impact on your planning in order to stay ahead. 

 

If you are going to drive value – the ability to give more than you receive from your clients – you have to offer more. That doesn’t mean several more services. Instead, it means identifying what’s important to your clients and delivering with the highest client experience possible. 

 

You need to evaluate the technology, products, services, and processes that will guide you and your clients through the discovery and planning process. Look at the talent level in your office to deliver on the changing needs of your clients, and find partners who can assist in delivering new solutions. Taking a step back and looking at your office in the fourth quarter can make a huge difference for many years to come. 

 

Winning Strategy

When setting goals and planning for next year, take a deeper look. Evaluate the process, the talent level, technology, and the client experience. Make sure you are making a difference that adds value to your clients’ overall client experience with you. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Financial Planning Retirement Practice Enhancement Business Planning

Why You Must Prepare to Win in 2018


Annuities

It’s hard to believe we are already in the fourth quarter of 2017. It may seem like you’re still trying to wrap your arms around this year, but it’s already time to look at your plans for 2018. Your first step should be to create goals and direction for your practice. We have a full 90 days to prepare for 2018, so there’s no excuse for not having a great year. 

 

Being around Coach Bob Knight for four years taught me a lot about planning for success. Many said that if you gave Coach Knight a week to prepare for a team, he would likely win the game. I encourage you to consider the things that he did to plan, and apply them to your business. 

 

Set reasonable but high goals for the season. As an owner of your financial services business, you need to have overarching goals for the year. Where do you want your business to be at the end of 2018, and how does that fit into your long-term strategy? 

 

At Indiana University, we had three goals for the season: 

  • Go undefeated in the pre-conference season
  • Win the conference, 
  • Go as far as we could in the NCAA tournament

 

Each step built on the next. No goal was unreasonable. And, if successful, the year added to the history of Indiana basketball and gave our fans great enjoyment. Notice that our goals were to win every game. Conference season is difficult, but it is not unreasonable to think that we can win the conference. And, we didn’t set out to win the NCAA tournament every year. However, we wanted to survive and advance as far as our team possibly could. 

 

Assess your strengths and weaknesses – honestly. Coach would consult with many of his mentors to ask how to use certain players. Some players were not good handling the ball; others were lightning quick. Using the players to their strengths was critical to game day and the season’s goal attainment. 

 

You need to take a hard look at your personnel and the strengths and weaknesses, even if you are a sole practitioner. My business coach helps me conduct a 360-degree review of both my direct reports and direct superiors. It’s uncomfortable to hear confidential and anonymous feedback, but it helps me adjust my leadership to the team – where I need to improve or what they like from me. 

 

You might ask yourself some questions like: 

  • What do I need to improve on in order to hit my 2018 goal? 
  • How do I need to re-shape my products or services in order to grow my business to my goal? 
  • Do the same for your support and sales staff – are they the right people and skill sets to take you to the next level? 
  • How do you need to reinvest in your people to ensure that you reach your goals in 2018 and beyond? 

 

Take serious stock in yourself, your people, and what they need from you to grow. 

 

Plan with discipline. After taking stock of what players could do well and not so well, we would play to our strengths and avoid our weakness. For each game, Coach determined the other team’s strengths and how our players could best neutralize those strengths. We then worked for the entire week on those plays and rules that gave us the best chance to win. 

 

Sometimes, players were put in uncomfortable positions, but not out of their skill level. Learning how to play a slightly new role requires repetition. So, we repeated those key factors to winning throughout the week in many different scenarios. Practice was intended to be harder than the actual game. 

 

Similarly, you need to plan your client marketing and interactions with the same discipline. Too often, we think placing products and talking with clients is “selling or marketing.” I argue that we have to set aside time and dedicate resources to disciplined marketing to our intended audience. You have to schedule time to network, work on scripts for advertisements, complete video shoots, rehearse radio shows, and plan for client events on a regular basis. 

 

Once engaged with a specific client, we have to utilize a disciplined, repeatable, and consistent review process to make the best interest recommendations. Just like planning for a new team the next weekend, you have to plan the same way for the next client. Solutions and how make recommendations will be specific to the client, just like playing against a different team requires different tactics. 

 

Prepare to Win. Winning 30 games during the 1987 season requires a lot more detail than this blog allows. However, I think that Coach followed a similar process every year. I’ve tried to follow a similar process in business as well. I set high and realistic goals, know my strengths and weaknesses for those goals and where I have to improve, and execute a consistent game plan that works toward my goals, knowing each situation is different. 

 

Winning Strategy

My favorite quote is sports is, “Everyone has a will to win; few have a will to prepare to win.” I always took this lesson to heart from my time with Coach Knight. Apply it to business to have success in 2018. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Financial Planning Business Planning Fiduciary

How to Reduce or Eliminate Taxes on Wealth Transfer


Annuities

When estate planners talk about annuities and IRAs, they say those vehicles are the worst to be holding when you pass away. I generally agree with the statement. Moreover, planners focus on the estate tax and reducing the impact of it. The deferred gains in a tax-deferred product – qualified or non-qualified – has the tendency to force the gain to be taxed at the recipient’s highest marginal tax bracket.

 

Because those assets become taxed at the highest marginal bracket, it’s important to have plans for the tax deferral or qualified accounts in a client’s estate. Many planners should look to life insurance as a way to create the necessary capital to pay for the tax. Life insurance also provides the liquidity needed in order to pay the tax without invading the IRA.   

 

Other planners look to leverage the power of the stretch IRA to minimize taxes and reduce the burden of the overall tax on the beneficiaries. Unfortunately, it appears that Congress is making plans to limit the amount that can be stretched to $250,000. For the mass affluent and middle-America clientele, the loss of the stretch provision might be devastating to wealth transfer. 

 

One Product, Two Tax Strategies

So, how can life insurance work in conjunction with IRAs and tax-deferred vehicles like non-qualified annuities? 

 

  • Life insurance can be used to pay for the income tax on the transfer of wealth. Income tax brackets remain extremely high – as high as 39.6 percent on a federal rate. That doesn’t even take into consideration the state tax revenue. That can push it well over 40 percent of the gain being taxed. As I travel around the country, I don’t hear enough people talking about the income tax effect on wealth transfer. Clients and planners hide behind the exemption of the federal or state estate taxes. Unfortunately, those do not apply to income taxes. Creating liquidity to meet the demands of the income tax due the April after the death of the IRA is a smart option. Life insurance pays for the cost of the tax on discounted dollars, and it generates the cash position when people need it most. 

 

  • Qualified assets above those that can be stretched can be transferred to life insurance. This allows the client to turn the transfer of wealth from tax-deferred to tax-free. This can be meaningful to beneficiaries and easier to transfer outside of the estate with proper use of trusts.  

 

Look at your tax-deferred vehicles and identify clients who will pass along not only a big inheritance, but also a big tax bill. Talk to them about using life insurance to reduce overall costs or completely eliminate the federal income tax on the transfers of wealth. 

 

Winning Strategy

Life insurance can be meaningful for those with larger IRAs or accounts with tax-deferred gains. These vehicles are the worst to have in your estate on the date of death. There are strategies to eliminate or reduce the income tax.  

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”

Tax Efficient Wealth Transfer Estate Taxes Life Insurance Annuities